Winter of Discontent battle lines being drawn

Well, Gideon’s had his say yesterday. I figured I’d wait around for the churnalists to go through the fine print before taking the opportunity to shoot my mouth off, or perhaps to bleat that it’s unfair, because middle class me is taking the bullet in some way akin to our army of fragrant Guardian-reading SAHMs.

Well, they’ve failed me dismally, or perhaps as a homeowner in the sense of being the party on the deeds without sharing it with a bank and part of a child-free couple, there is compensation for ten years of not getting any free gravy from Labour. Not getting any in the first place means Gideon doesn’t get to take it away. Obviously there are the macroeconomic hazards in future rang out by distant bells tolling but I didn’t take it straight between the eyes yesterday. That I’m aware of so far, anyway.

That’s not to say that I’m unaffected. If I were to want to go somewhere by train, the original small mortgage I’d need to raise for the ticket is likely to go up to a mid-sized mortgage as a result of the subsidy change. Obviously VAT is going to go up. But the place I am going to take it is in the back, in a mightly subtle way.

Gideon’s taken out an awful lot of money from the British economy. If he were flying a plane he’s kicked the throttle back from Gordon Brown’s full bore to about half. He has to avoid a stall.

What he will probably do is get the Bank of England to hit the old QE button and create money. That’s the nice thing about being the government, you can make money. If you or I did that in our garages we’d get nicked for it, because it creates inflation. But when Mervyn King does it, it’s a good thing, and it compensates for all that wedge the government isn’t spending, and gives us something to pay unemployment benefit to the half-a-million people who will lose their jobs.

Merv doesn’t have to make money in his garage, he has a computer to do it, and if he has to get physical then he has those nice chaps at the Royal Mint to do it. Lately even they have been complaining about inflation, as it is costing too much money to make money, particularly those danged 5p and 10p coins.

Last time that happened we made the buggers smaller, but there a limit to how far that can go before we can’t see them any more. The problem is the copper price has gone up so much the copper in the cupro-nickel now costs more than the coin it’s made of. Maybe I should stockpile some of these, and heat them up in a metal bucket over the fire in the desperate times to come, so I can release them onto the London Metal Exchange when Peak Copper has happened. Anyway, for some reason Merv doesn’t think this is a problem, he’ll simply get them to make the 5 and 10ps out of pressed steel, like they did with the coppers a while ago. So your silver coins will become magnetic for the first time. The need to continually debase the coins of the realm is not usually an indication of fastidious economic management.

Inflation will destroy chunks of my wealth held in financial instruments of all sorts, though this will particularly affect cash holdings like my cash ISA which is worth about 2% less this year than last.

Wealth held in non-financial instruments like Real Stuff will probably weather the storm better, though I’d draw the line at claiming that my house will be a hedge against inflation (the inflation hedge rationale behind that article applies equally to a property bought at home).

So the places I will take the bullet aren’t as explicit as the places many people will be taking it. But take it I will. I will concentrate my energy on adjusting my risk profile and asset class spread to minimize the damage, but I won’t bother writing into the Guardian about how dreadful it all is. I don’t think Patrick Colllinson will be as nice about people like me as he was about hard-done-by SAHMs that everybody was so mean about.

If they have got any brains, the Argies are likely to have another bash at taking over the Falklands in the next ten years as we launch our shiny new aircraft carriers, without any aircraft on ‘em. I guess that indirectly affects me as there is oil there which will be kind of handy in a post-peak world and so the punch-up is more likely, and actually about something real rather than the need to get Thatcher re-elected. I don’t normally have much time for the old goat Norman Tebbit but I can’t help agreeing with him that you need planes on an aircraft carrier in the same way as beer is rather useful in a pub. Part of the problem here is there is no sense of competence or personal responsibility in people who draft the byzantine contracts in these things.There’s apparently some wizard wheeze about using giant rubber bands to launch paper aircraft later on.

Before someone takes me to task for being a warmongering SOB I really ought to say that it is way beyond my competence to know whether or not Britain needs aircraft carriers and a blue water navy in the 21st century. That’s why we have guys with gold braid on their shoulder pads and handlebar moustaches to think about stuff like that. But this much I do know – if we do need aircraft carriers then we need aircraft on the darned things and not just a few choppers to break up the stark expanse of the landing deck a little bit. It’s not like we’re going to use the pointy bit as a battering ram are we ;)

It seems to be part of a general disease, this casual approach to dotting the Is and crossing the Ts. I suppose I didn’t specify that I’d like to have the wheels and the engine when I bought my last car, but I’d have been mighty pissed off if they hadn’t come with it, as well as looking a bit silly when I got in the thing to drive it away. It isn’t the sort of minor detail that escapes you in buying something.

It’s not just the MOD, it appears that our fine friends over the pond have been getting a bit slap-happy with the paperwork in issuing mortgages, and as a result they can’t really work out who a house belongs to, which at least is giving some people a break by freezing foreclosures for a while. Sometimes I wonder about our American friends. The rule of law and secure property rights are meant to be axiomatic to human freedom, and I am suprised at the casual approach to this in the US, this will cause endless pain in future if the property registration system ends up subject to undisclosed future claims and liabilities.

It was not until researching this observation about the rule of law, which I had been taught at school, that I realised that it was quite so right-wing in its derivation :) Anything which needs references from the Adam Smith Institute and where the wikipedia article cites Hayek and the Austrian School is usually the signature of a community that considers Genghis Khan as a bleeding-heart liberal, but in this area I’m with them.

The half-million souls hammering the public sector is due to take is asking for a fight, we only have to look over the Channel to see some of the brouhaha we could be in for. As a gratuitious aside, I love the comment that after years of continual man-eating, Carla Bruni supposedly said that she graduated to marrying Sarkozy because she wanted a “man with nuclear power“. There’s no way up for her afterwards, so Sarko has gotta smash the unions. I don’t know if SamCam feels the same. And no, I have no explanation for Thatcher’s behaviour on that line of reasoning at all ;)

Some events mark generations, and one of those was the Winter of Discontent, a punch-up between the unions and the Labour administration of James Callaghan. Well, it looks like the brothers are getting ready for another rumble, along similar battle lines.

Some things are different, of course, gone are the days of Scargill’s flying thugs pickets, and the time may yet come again when taxi drivers have to look nervously at motorway bridges for the descendants of Art’s enforcers innocent hot-headed boys with concrete blocks that just happened to be in their hands when they accidentally let go of them into the traffic.

Part of the problem is that many people just don’t get it. We have been living beyond our means. Michael Lewis put his finger on it in his Vanity Fair article about the astonishing carry-on in Greece.

The tsunami of cheap credit that rolled across the planet between 2002 and 2007 has just now created a new opportunity for travel: financial-disaster tourism. The credit wasn’t just money, it was temptation. It offered entire societies the chance to reveal aspects of their characters they could not normally afford to indulge. Entire countries were told, “The lights are out, you can do whatever you want to do and no one will ever know.”

What did we Brits want to do when the lights were out, I wonder? We wanted to inflate the price of our houses, and feel rich that way. Oh and we preferred not to get round to the tedious business of paying down the mortgages that went with them, preferring to stick with paying the interest only.

Of course, our inflated house prices made us feel rich, so we liked to take that money out and fritter it away on holidays and trinkets for the kids. All the while telling ourselves that our houses were making us more money than our jobs were, and never asking ourselves where did all this money come from?

Then some bugger turned on the lights, somewhere in late 2007, and we’re now spitting bricks, because they also seem to have turned off the free money tap. The trouble is, many of us also seem to have got infantilised at the cheap credit teat, and now it is gone we don’t seem to get it.

Living standards are going to fall. If we’re lucky, they will only fall to where they should have been without the sugar rush of almost free credit. If we’re unlucky, we will get to find that they fall further as we share the world’s resources with a burgeoning middle class elsewhere.

We’re also going to find out that we were carrying a lot of passengers. In the good times we had money to spare for all sorts of frippery. There’s nothing wrong with that, if you have the money then why not spend it to make a prettier world.

This save the arts video strikes me as a classic case of self-interested bleating. The trouble with ‘funding’ is it allows people to go right up their own backsides. At least when the King sponsored art the artist had to please him. Mozart, Beethoven and Michaelangelo didn’t get government funding. The very fact that the arts need funding means that they don’t speak to enough people to pay their way.They need to do better now.

Some of those passengers are also an awful lot of these unions’ members. It will be interesting to see how this pans out. Some of the cuts will be way over the top. Some will be cutting stuff that we can’t afford to do any more, like buying aircraft. There’s an awesome special interest pleading that these cuts will hit the poor hardest. It really isn’t that hard to understand. The poor have been the major beneficiaries of the benefits culture. Any attempt to roll that back is gonna hit the poorest hardest. They can’t hit me with benefit cuts because I don’t get any. The only way the poor can not be hit hardest if for taxes to go up. I think some of that was discussed at the election, though I am not sure the Lib Dems are exactly delivering what their voters expected.

4 Jan 2011, 8:13am
by Marco Polo


You probably have a lot more in common with the Austrian economists than you seem to think. Ludwig von Mises (Hayek’s mentor) wrote this early in the 20th century. Everyone thought he was a nut: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
He chose his personal motto at the age of 12; was the following quote from Virgil: “Tu ne cede malis sed contra audentior ito. Do not give in to evil, but proceed ever more boldly against it.”

The Austrians were the only ones predicting the financial crisis to anyone who would listen. Almost no-one was, tho more are now. The best site to educate oneself about this is http://www.mises.org
Best of luck. Great blog.

 

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